Credit Suisse ILS’ reinsurers Kelvin Re & Humboldt Re have ratings affirmed

The two Guernsey domiciled rated reinsurance vehicles managed by and backed by capital from the Credit Suisse Insurance Linked Strategies Ltd. team have had their ratings affirmed and their underwriting strategies tweaked to reduce the volatility in their results going forwards.

Rating agency A.M. Best highlights the balance-sheet strength of each of the rated reinsurance vehicles, citing their strong risk-adjusted capitalisation thanks to backing from insurance-linked securities (ILS) funds under management of Credit Suisse Asset Management’s specialist ILS investments unit.

Kelvin Re is backed by investments from the Abu Dhabi Investment Council, while Humboldt Re is backed solely by capital from some of the insurance-linked securities (ILS) funds managed by Credit Suisse Asset Management (CSAM).

Both of the rated reinsurance vehicles are domiciled in Guernsey and provide rated paper to support the underwriting and capital deployment of the CSAM ILS funds and one of its investors.

They benefit from access to risk, with their underwriting business sourced through the origination capabilities of Credit Suisse’s Insurance-Linked Strategies team, one of the largest ILS fund managers.

Given their short-tail property catastrophe and specialty lines reinsurance underwriting focus, it’s no surprise that the reinsurers have faced losses over the last three years.

In 2019, A.M. Best notes, Kelvin Re and Humboldt Re both experienced “the negative impact of a number of catastrophe events in the year as well as adverse experience on reserves relating to catastrophe events in 2017 and 2018.”

However, for each of them the rating agency said these losses are, “reflective of the company’s business model and are within its risk appetite.”

In each case these rated ILS backed reinsurers has, “modified its underwriting exposures in 2020, which is expected to reduce the volatility in technical performance going forward.”

But A.M. Best says that the successful execution of their modified strategy remains subject to execution risk.

Both Kelvin Re and Humboldt Re have balance-sheet strength that is, “underpinned by the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio, excellent financial flexibility and a dynamic retrocession programme.”

In the case of Kelvin Re, the reinsurer backed by investments from the Abu Dhabi Investment Council, it operates a more alternative investment strategy as well, allocating some of its assets to hedge fund strategies managed by specialist investment managers.

So alongside catastrophe exposure, in the case of Kelvin Re the alternative investments strategy also drives its capital requirements, to a degree.

But, importantly A.M. Best notes that the investment strategy followed by Kelvin Re has performed well in recent months, despite the global pandemic related financial market contagion.

“AM Best notes that despite the company’s relatively high investment risk profile, the alternative assets produced a robust performance in the first quarter of 2020, despite volatility in global financial markets,” the rating agency said.

Kelvin Re maintains a relatively high level of capital and surplus, A.M. Best said, with this totalling USD 934.1 million at year-end 2019.

As we explained in late 2019, Kelvin Re’s capital was bolstered by the addition of another US $350 million of capital.

Meanwhile, in 2019 Humboldt Re’s risk-adjusted capitalisation declined, driven by an operating loss and higher underwriting risk requirements, but A.M. Best said this still remains well-supportive of the strongest level.

These rated reinsurance vehicles have given the Credit Suisse ILS team a significant amount of flexibility through recent years, allowing the team to deploy capacity through rated balance-sheet vehicles rather than on a fully collateralised basis or using rented paper.

Of course, Credit Suisse ILS also now has a Bermuda Class 3A reinsurance vehicle, Bernina Re Ltd. as well, providing it with even more options for supporting global clients looking for highly secure reinsurance capacity.